NEW DELHI, Feb 1 (Reuters) - India's second biggest carrier
Jet Airways, close to a tie-up with Abu Dhabi's Etihad
Airways, swung to a quarterly profit of 850 million rupees
($15.98 million) on Friday on lower costs and rising fares in an
under-serviced market.

Jet shares have almost doubled in the past three months as
Etihad's plans to pick up a stake in the airline have become
clearer.

The Jet deal, if closed, will be the first since India
relaxed ownership rules in September last year and allowed
foreign carriers to buy up to 49 percent in domestic carriers
that are battling stiff competition and high operating costs.

Jet's earnings surprised analysts, who according to Thomson
Reuters I/B/E/S, were expecting a profit of 278.5 million
rupees. It was the third straight quarter it has exceeded
estimates.

The October-December earnings were a sharp turn around from
a 1.01 billion rupees loss from a year earlier.

Pricing power in the market has improved leading to a 17.1
percent jump in yields - a measure of average revenue per
passenger - and that is likely to continue, Jet said in a
statement to the Bombay Stock Exchange.

Kingfisher Airlines, controlled by liquor baron
Vijay Mallya and once India's No. 2 carrier, has stopped flying
since the start of October, allowing other carriers to raise
fares on key routes.

Budget carrier SpiceJet, which is also in talks
with foreign airlines to sell a stake, swung to a quarterly
profit at the end of 2012, and said it would target a bigger
slice of revenue from international flights in the future.

Fiercely competitive Indian carriers are struggling under
massive debt, as they have to sell tickets below-cost in a
market marred by high taxes on fuel and high airport charges.

"We continue in our endeavour on cost cutting measures,
exploring various avenues of ancillary revenues and process
improvements across all segments of the business, which will
help us improve the business further," Chief Executive Nikos
Kardassis said in a statement.

Jet has discontinued flying to many loss-making routes in
the past few months, which sometimes meant aircraft getting
grounded "in the short term," and that hurt revenue by 550
million rupees, Jet said.

POTENTIAL ETIHAD DEAL

Top executives from Gulf carrier Etihad and Jet met Indian
civil aviation minister Ajit Singh and Trade minister Anand
Sharma on Thursday, in a sign that a deal is likely to be
announced soon.

"Pursuant to the announcement of liberalised FDI (foreign
direct investment) policy permitting foreign investment in
Indian airline, the company is in discussion with a reputed
airline for a strategic investment in the company," Jet said on
Friday.

Jet expects to finalise a stake sale deal with Abu Dhabi's
Etihad Airways in a week or so, an executive at the airline, who
declined to be named, said.

The terms of the possible deal have not been disclosed, but
a government source said earlier this month Etihad was in talks
to pick up a 24 percent stake in Jet for up to $330 million.

Any deal between an Indian carrier and a foreign airline has
to be cleared by the Indian government.

Jet shares closed 0.32 percent up at 623.30 rupees on the
National Stock Exchange, outperforming the broader market
which fell 0.57 percent.